 Optimal hedging strategy with futures oil markets via FIEGARCH copula modelDhoifli Ifa and Ahmed Ghorbel () American Journal of Finance and Accounting, 2015, vol. 4, issue 2, 151-171 Abstract: In this work, our aim is to evaluate the hedging strategies performance of a range of traditional methods such as one-to-one, MCO, and other methods based on GARCH models and copula theory, for two spot and futures energy markets: WTI crude oil and heating oil. We model dependence structure between spot and futures oil markets using copula theory that applied to bivariate standardised residuals data obtained from two fitted univariate FIEGARCH models. This procedure permits to simultaneously capture asymmetric non-linear behaviour, dependence structure, and long memory. We use this method with different copulas functions (Joe, Frank, bb1, Gumbel, Gaussian and dynamic) to investigate hedging performance and the efficiency of copula methods in risk reduction and return improvement. The empirical results show that the combination of the FIEGARCH model and Joe copula is the best hedging strategy for both indices, because it gives the (H/E) ratio the lowest. Also the results show that the dynamic copula does not improve the results found by other strategies. Keywords: hedging strategy; oil futures markets; oil spot markets; oil markets; financial risks; future contracts; hedge ratio; optimisation; FIEGARCH; dynamic copula. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:amerfa:v:4:y:2015:i:2:p:151-171 Access Statistics for this article More articles in American Journal of Finance and Accounting from Inderscience Enterprises Ltd |
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